Costs can be classified into two categories, fixed and variable costs. These costs behave differently based on the level of sales volumes. Suppose we are running a restaurant and have identified certain costs along with the number of annual units sold of 1000.
Item: Raw materials(cost for hamburgers)
Total annual cost:650
Total annual cost:9000
Identify which cost item above is fixed and variable and why. What is the cost per unit of each? Suppose we increase our sales volume to 6000 and then to 8000 units the following year(and are still w/in the relevant range), what would be the total annual cost and unit cost of fixed and variable costs?© BrainMass Inc. brainmass.com June 3, 2020, 7:20 pm ad1c9bdddf
Fixed costs are those costs which do not vary with the volume, while variable costs vary with the volume. In this case, rent is a fixed cost which has to be paid irrespective of the units of hamburgers produced. Raw Material is a varable cost since its value will change with the units of hamburgers.
The total number of units is 1,000. The ...
The solution explains how to identify fixed and variable costs